Living Economics

Japanese supermarkets charge higher prices for machine-vended items to customers who value their convenience.

When I was studying in Japan, I noticed that their vending machines sold not only drinks or snacks but also cigarettes and beers. Some of the supermarkets also owned the vending machines outside their stores. However, the prices of items from the outside vending machines were higher than those items inside the store. Since the overhead costs for supermarkets were much higher than those for vending machines, one might wonder why machine-vended items were higher than similar items from the supermarket?

Unlike Americans who load up on grocery once a week with their family cars, Japanese women buy grocery everyday on foot, bike, or buses with no help from their men. Therefore, they can't carry too much on single trips. As price searchers, supermarkets that own the vending machines figure out some people, especially those Japanese men, just do not want to wait behind all these women for cigarettes or beers. So, supermarkets set up some vending machines outside the stores and charge higher prices to those who want convenience.

Higher prices were charged not only for machine-vended cigarettes and beers, but also for snacks and drinks. When I was in Japan, supermarkets didn't stay open late. All of them closed no later them 9:00 p.m. What happens if people want some late-night snacks or drinks and the nearest convenience store is miles away? Well, there are vending machines everywhere, but you just have to pay more.

In other words, Japanese supermarkets used the convenience factor to separate out customers with different price elasticities of demand. Those who valued convenience were charged a higher price for items from the outside vending machines because they had more inelastic demand. Those who have more time to wait were charged the regular prices for similar items bought inside the store. Needless to say, the ability to price discriminate among customers helped to increase supermarket profit.